Do you have a loved one with a significant disability or special needs that require intensive nursing and personal care? Government benefits may be available to help with these costs. A special needs trust is one way to help your loved one access these benefits while also protecting their assets.
However, special needs trusts must follow specific requirements and rules. Your family needs experienced legal guidance to help you set up and manage your loved one’s special needs trust. Contact Mushkatel, Gobbato, & Kile, P.L.L.C. for an initial case evaluation to learn more about Arizona special needs trusts.
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How Does a Special Needs Trust Work in Arizona?
Arizona law defines a “special needs trust” as a trust established to benefit one or more people with disabilities. One of its purposes must be to allow the person with the disability to qualify or continue to qualify for benefits available to people with disabilities. A special needs trust can have remainder beneficiaries who do not have disabilities.
A person may qualify for a special needs trust if they have a disability meeting the definition under 42 United States Code section 1382c. The code defines an individual with a disability as someone whose long-term physical or mental impairment prevents them from working.
To establish a special needs trust, a disabled person’s family must create a trust instrument that names the disabled person as the trust’s beneficiary. The trust must also name a trustee to manage and invest the trust’s assets. Trustees are often family members or professional advisors.
When May a Special Needs Trust Be Helpful?
A special needs trust can help families care for disabled loved ones in various circumstances:
- Access means-tested benefits – A special needs trust can help a disabled adult qualify for means-tested government benefits if they have assets that would otherwise place them above the threshold. Special needs trusts can also help ensure a disabled person’s continued eligibility for means-tested benefits after they’ve received substantial assets, such as an inheritance from family members or a personal injury or workers’ compensation settlement.
- Allow family support – Special needs trusts can give families the tools to protect and manage their disabled loved one’s assets – or have a professional do so on their behalf. Special needs trusts can also give families the means to support their disabled loved ones financially, on top of government benefits. This additional financial support can improve a loved one’s quality of life by paying for long-term care and personal assistance services not covered by Medicaid or other services.
- Offer source of income – Alternatively, special needs trusts can set resources aside to provide care for disabled family members if they should ever lose access to government benefits and services.
What Are the Different Types of Special Needs Trusts?
There are three main types of special needs trusts: first-party, pool, and third-party. Each type of special needs trust has different benefits and advantages that serve individuals with different needs.
First-Party Special Needs Trusts
First-party special needs trusts enable individuals under 65 to qualify for means-tested government benefits like Medicaid or Supplemental Security Income (SSI) and maintain that eligibility. An individual may need a first-party special needs trust if they own assets before developing special needs or receive significant assets after developing special needs, such as a personal injury award or an inheritance. The law requires these trusts to “pay back” the government for benefits following the beneficiary’s death. The disabled individual’s family manages this type of trust privately.
Pooled Special Needs Trusts
Like first-party special needs trusts, pooled special needs trusts help disabled individuals qualify for Medicaid and other means-tested government benefits. However, unlike a traditional first-party special needs trust, a pooled trust manages the assets of multiple special needs individuals and is overseen by a nonprofit organization. Pooled trusts combine the assets of their members for investment purposes and to share the cost of trust administration. Each individual has a separate sub-account under the pooled trust.
Third-Party Special Needs Trusts
Also called supplemental needs trusts, third-party special needs trusts are funded by family members’ assets. While first-party special needs trusts primarily help disabled individuals qualify for government benefits, third-party trusts provide supplemental financial resources on top of government benefits to improve a disabled individual’s quality of life. Third-party trusts continue to provide financial assistance to disabled family members after their providers pass away, giving families peace of mind when it comes to their loved one’s care.
Are Special Needs Trusts Considered Assets?
Federal and state benefits laws consider traditional trusts as assets belonging to the trust beneficiary when calculating the beneficiary’s eligibility for means-tested government benefits. However, special needs or Medicaid trusts established according to the requirements and rules for such trusts do not qualify as assets for means-testing purposes.
Thanks to this differentiation, special needs trusts can help disabled individuals minimize the size of their estate to qualify for Medicaid, SSI, or other means-tested benefits. However, in many cases, when a disabled individual passes away, the assets in their special needs trust must be used to reimburse the government for the means-tested benefits it provided to the trust’s beneficiary.
What Does a Special Needs Planning Attorney Do?
A special needs planning attorney can help your family by evaluating whether a trust is right for your loved one and determining which type of trust can best serve them. Your attorney can then draft a trust instrument according to your family’s needs and estate planning goals. They can also help you fund the trust with various assets, including property and money owned by your disabled loved one or financial contributions from family members. Finally, a special needs planning attorney can help your family administer the trust. This may involve reimbursing the government after your loved one passes away and distributing excess assets to remainder beneficiaries according to the trust’s terms.
Contact a Scottsdale, AZ Special Needs Planning Attorney
If you have a loved one with special needs, careful estate planning can help your family protect their health, rights, and dignity. Contact Mushkatel, Gobbato, & Kile, P.L.L.C. today for a confidential consultation with a Scottsdale special needs planning lawyer to discuss if a special needs trust will work for your family’s situation.
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